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    Economic recovery will have to precede credit recovery

    Synopsis

    "The last two quarters have been extremely tough. The rebound will accompany credit growth," says Challa Sreenivasulu Setty, MD, SBI.

    Challa Sreenivasulu Setty (File photo)

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    SBI MD Challa Sreenivasulu Setty says RBI’s explicit forward guidance in terms of accommodative stance gives comfort to the market in terms of what the central bank is thinking. This stance of accommodation is important at this juncture. Excerpts from an interview:

    RBI is a full service central bank they have many roles. But inflation in a country as poor as India is perhaps primary to a central bank. Isn’t it?
    At this juncture it is important that we send out a signal that growth is important. We are still not out of woods. While the number of Covid cases has come down, the opening up of the economy has happened and the rebound seems to be real, I think still it is important to give it a direction. We are glad to know that there is an explicit forward guidance in terms of accommodative stance, not just for FY21, but also FY22, and that gives comfort to the market in terms of what RBI is thinking. This stance of accommodation is important at this juncture.

    Real rate of interest is damaging in the long run, because ultimately that’s what depositors are getting. Borrowers have never had it this cheap. Creditors not picking up and bankers say it is not because they are not willing to lend. So either you are not willing to lend or these negative real rates of interests are not low enough. What’s your take there?
    Economic recovery will have to precede a credit recovery. If, as RBI anticipates, Q3-Q4 bring positive growth back into picture, there is bound to be some credit growth. Whatever credit growth is happening now has been mainly in the retail space. What we have seen is that a certain amount of investment credit is picking up even in the corporate space. It may not be perceptible, but there are enquiries in terms of asking for new facilities. That would strengthen further, as we go forward. The past two quarters, Q1 & Q2, have been extremely tough. Prior to that, credit growth was not picking up. The rebound will accompany credit growth.

    Real rate of interest is linked to inflation. There is a lot of debate in terms of whether it is a supply-related inflation or demand-related inflation. While we keep that aside, the focus should be on growth. To that extent, whatever we are currently witnessing is in the right direction.
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